Frequently Asked Questions
You need to check the relevant legislation in your State and Territory, as the rules are different in each jurisdiction.
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Can the head of a consolidated group be a partnership or a trust?
- No. Only an Australian resident company can become head of a consolidated group.
- A trust or partnership can form part of the overall consolidated group if it is a wholly owned subsidiary of the head company.
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What needs to be calculated when consolidation takes place?
- There are various tax calculations and financial adjustments that must be made to determine tax cost setting and allocable cost amount (ACA) before consolidation can be finalised.
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What is ACA?
- ACA refers to the allocable cost amount. The method to be adopted in determining the ACA of an entity is contained in section 705-60 of the Income Tax Assessment Act 1997 (Cth). It can be quite complex.
- You may need a lawyer or a tax specialist to assist you in calculating the ACA.
- Our LegalPlan™ membership will allow you to ask experienced business lawyers for tenders on your company consolidation needs.
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What are the requirements for a head company?
- The head company must be an Australian resident company and must not be a subsidiary in another consolidatable or consolidated group.
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What are the requirements for a subsidiary company?
- The subsidiary company must be a resident company, trust or partnership.
- It must also be a wholly-owned subsidiary of the head company.
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Where can I obtain information about the liabilities of the joining entity?
- You can obtain this information from the entity’s statement of accounts.
- If you have any legal concerns you can use our free and anonymous Ask a Lawyer service to get information specific to your situation.
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What is a pre – CGT asset?
- A Capital Gains Tax (CGT) asset is defined under section 108.5 of the Income Tax Assessment Act 1997 as:
- any kind of property; or
- a legal or equitable right that is not property.
- It also includes:
- goodwill or an interest in it; and
- an interest in an asset of a partnership.
- You can use our Phone a Lawyer service for a preliminary legal consultation if you require legal advice about your CGT situation.
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Who may conduct a market valuation for tax purposes?
- Market valuation may be conducted by:
- an external qualified valuer;
- an internal qualified valuer;
- a member of a recognized professional valuation body; or
- a person without formal valuation qualifications who bases the valuation on reasonably objective and supportable data.
- The most appropriate choice for you will depend on the nature and estimated value of the asset and other circumstances of the business.
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Who is liable for the tax liability of the group?
- The head company is responsible for the tax liability of the entire group.
- The members of the group may still be jointly and severally liable if the head company fails to comply. This means that one or more of the subsidiary companies may be liable for the tax of one member or the entire group.
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What are the steps required to implement a scheme of arrangement?
- There are several key steps when it comes to implementing a scheme of arrangement.
- The bidder and the target company will usually execute a Merger Implementation Agreement (MIA) setting out each party's rights and obligations.
- The scheme will then be publically announced including all of the key terms and conditions. These terms will include any amount to be paid by the bidder.
- The scheme documents will be prepared. This includes an explanatory statement or scheme booklet. Notice must be given to each security holder. Often an independent expert report is included at this stage. This report specifies whether the best interests of security holders are catered for in the proposed scheme.
- You could use our Fixed Fee Quote service to call for tenders from lawyers to help you draft the documents you need.
- The Australian Securities and Investments Commission (ASIC) must be given at least 14 days notice to review the scheme documents.
- If ASIC is satisfied then it will confirm this with the target company.
- You must then apply to the court to convene a meeting of all security holders to enable consideration and voting. The confirmation from ASIC may need to be produced at this court hearing to prove to the court that ASIC has had the opportunity to review the scheme and has no objections.
- A resolution from security holders must be obtained through each meeting. The resolution must be passed by a majority of security holders present and voting and must also represent 75% of the votes.
- A second application is then made to the court to approve the scheme. The court will consider whether the scheme is fair and reasonable. The scheme of arrangement generally won't be approved unless:
- the court is satisfied that the scheme is not intended to avoid the provisions of the Corporations Act 2001 (Cth); or
- a statement from ASIC is provided that confirms there are no objections.
- The scheme is then binding on all members and is ready for implementation.
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What are the main documents required for a takeover bid?
- Both a bidder's statement and a target's statement must be provided for a takeover bid.
- The bidder’s statement contains the details about the bid and the terms and conditions of the offer including the method of payment, number of shares subject to the bid and other protective provisions to govern the takeover.
- The target’s statement must respond to the bidder’s statement by providing details of the target’s security holders and their corresponding shares. The statement provides an opportunity for the target to lay down the terms and conditions for its recommendation and acceptance generally that will maximise security holder value. The target can also highlight the insufficiency of the bid in order to gain leverage in the deal.
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What happens when the bidder excludes relevant information from their statement?
- Usually a bidder will be required to prepare a supplementary bidder's statement to remedy the omission.
- This will be the case when a bidder becomes aware of:
- a misleading or deceptive statement;
- an omission from the statement that is otherwise required by the legislation.
- Alternatively if a misleading or deceptive statement has been made the company or individual who drafted the statement may be in breach of the Corporations Act 2001 (Cth) and could even be held criminally liable in some circumstances.
- Our Phone a Lawyer service may be able to put you in touch with a lawyer for a preliminary consultation if you think you may need legal advice.
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How long will it take to complete the takeover?
- The duration of a takeover will depend on the mode and complexity of the takeover.
- On-market takeovers are generally uncertain because they depend on the consent or dissent of the security holders. On-market takeovers usually take between 2 months and 12 months.
- Off-market takeovers are also subject to a degree of uncertainty. In the absence of dissent an off-market takeover can be completed within a year.
- Schemes of arrangement often occur faster as they are court approved and friendly. A scheme of arrangement can be implemented within 4 to 5 months depending on its complexity.
- These estimates are guides only. The duration of a takeover from start to finish can vary. Often the preparations for a takeover can start months or years before a process is initiated.
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What method of takeover is ideal to protect the rights of the target corporation?
- A scheme of arrangement provides more protection to the target company.
- Under a scheme of arrangement the target has absolute control over the transaction unless rights are waived in favour of the bidder under the merger implementation agreement.
- You can use our free and anonymous Ask a Lawyer service if you have a particular issue you want to know more about.
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When can the acquirer of shares obtain 100% ownership of the corporation?
- In on-market and off-market takeovers a target may be compelled to sell the totality of its securities if a person already holds 90% of the securities of the same particular class. This is known as ‘compulsory acquisition.’
- In a scheme of arrangement there is an 'all or nothing' approach. A bidder knows that it will acquire 100% of the securities if successful. If unsuccessful it will not acquire any. It will be successful if it has the approval of 75% of voters by value and 50% by number of voting security holders.
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What conditions can be specified in an off-market takeover?
- A bidder under an off-market takeover makes identical offers to all security holders in a particular company.
- The takeover bid is often conditional on the waiver or satisfaction of a number of conditions. For example the bidder may be required to obtain a certain threshold of agreement from security holders. This may be 50% or 90% or another percentage. The bid may also be conditional upon obtaining regulatory approval from a regulatory body such as the Australian Competition and Consumer Commission (ACCC).
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Are any conditions prohibited in an off-market takeover?
- Yes. The following conditions are prohibited:
- maximum acceptance conditions such as those that state an offer terminates if the number of securities for which the bidder receives acceptances exceeds a particular amount;
- conditions dependent solely on the subjective opinion of the bidder;
- conditions that financial payments or other benefits be given as compensation for loss of office be approved; or
- conditions that the bidder may only acquire specific shares instead of all the shares in a specific class.
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Can the bidder withdraw an offer that was previously accepted?
- Generally a bidder cannot withdraw an offer once it has been accepted. There is one exception. This exception applies when the withdrawal is consented to or approved by the Australian Securities and Investment Commission (ASIC).
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Can the target withdraw its acceptance to the takeover bid?
- Generally a target cannot withdraw their acceptance to a takeover bid. There is one exception to this rule. If the acceptance was based on unacceptable conditions that are subsequently discovered by the target then the target may be entitled to withdraw.
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Are there remedies for misleading or deceptive information?
- Yes. The Corporations Act 2001 (Cth) prohibits misleading or deceptive conduct, statements or omissions.
- You should notify the issuer of the document as soon as possible upon becoming aware of the misleading information.
- The person who has been affected by the misleading or deceptive conduct may pursue civil and criminal remedies. They may be entitled to compensation if they have suffered any loss as a result of the misleading or deceptive conduct.
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Can the bidder dispose of the securities acquired during the bid period?
- Generally speaking the answer is no. The bidder cannot dispose of the securities that they have acquired during the bidding period. The bidder may only dispose of the securities after the offer is made.
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Can the bidder enter into arrangements with selected shareholders before the bid is made?
- No. These arrangements are prohibited because they confer collateral or special advantages to a selected few shareholders. This will prompt the specific target shareholders to dispose of their shares. Such activity may constitute insider trading. Insider trading can constitute a criminal offence and give rise to personal liability.
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